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StepStone Group Reports First Quarter Fiscal Year 2024 Results

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NEW YORK, Aug. 03, 2023 (GLOBE NEWSWIRE) -- StepStone Group Inc. (Nasdaq: STEP), a global private markets investment firm focused on providing customized investment solutions and advisory and data services, today reported results for the quarter ended June 30, 2023. This represents results for the first quarter of the fiscal year ending March 31, 2024. The Board of Directors of the Company has declared a quarterly cash dividend of $0.21 per share of Class A common stock, payable on September 15, 2023, to the holders of record as of the close of business on August 31, 2023.

StepStone issued a full detailed presentation of its first quarter fiscal 2024 results, which can be accessed by visiting the Company’s website at https://shareholders.stepstonegroup.com or by clicking here.

Webcast and Earnings Conference Call

Management will host a webcast and conference call on Thursday, August 3, 2023 at 5:00 pm ET to discuss the Company’s results for the first quarter of the fiscal year ending March 31, 2024. The conference call will also be made available on the Shareholders section of the Company's website at https://shareholders.stepstonegroup.com/. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time to register.

The conference call can be accessed by dialing 1-888-886-7786 (United States) or 1-416-764-8658 (international).

Replay

A replay of the call will be available approximately two hours after the live event. To access the replay, dial 1-844-512-2921 (United States) or 1-412-317-6671 (international) and use the PIN 16493363. This replay option will be available through August 17, 2023. The replay can also be accessed on the Shareholders section of the Company's website at https://shareholders.stepstonegroup.com.

About StepStone

StepStone Group Inc. (Nasdaq: STEP) is a global private markets investment firm focused on providing customized investment solutions and advisory, data and administrative services to its clients. As of June 30, 2023, StepStone was responsible for approximately $640 billion of total capital, including $143 billion of assets under management. StepStone's clients include some of the world's largest public and private defined benefit and defined contribution pension funds, sovereign wealth funds and insurance companies, as well as prominent endowments, foundations, family offices and private wealth clients, which include high-net-worth and mass affluent individuals. StepStone partners with its clients to develop and build private markets portfolios designed to meet their specific objectives across the private equity, infrastructure, private debt and real estate asset classes.

Forward-Looking Statements

Some of the statements in this release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking. Words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “may,” “plan” and “will” and similar expressions identify forward-looking statements. Forward-looking statements reflect management’s current plans, estimates and expectations and are inherently uncertain. The inclusion of any forward-looking information in this release should not be regarded as a representation that the future plans, estimates or expectations contemplated will be achieved. Forward-looking statements are subject to various risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, global and domestic market and business conditions, successful execution of business and growth strategies and regulatory factors relevant to our business, as well as assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity and the risks and uncertainties described in greater detail under the “Risk Factors” section of our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on May 26, 2023, as such factors may be updated from time to time. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use the following non-GAAP financial measures: adjusted revenues, adjusted net income (on both a pre-tax and after-tax basis), adjusted net income per share, fee-related earnings and fee-related earnings margin. We have provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this earnings release. The presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, the non-GAAP financial measures in this earnings release may not be comparable to similarly titled measures used by other companies in our industry or across different industries. For definitions of these non-GAAP measures and reconciliations to applicable GAAP measures, please see the section titled “Non-GAAP Financial Measures: Definitions and Reconciliations.”


Financial Highlights and Key Business Drivers/Operating Metrics

 Three Months Ended Percentage
Change
(in thousands, except share and per share amounts and where noted)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
 vs. FQ1'23
Financial Highlights       
GAAP Results       
Management and advisory fees, net$116,732 $119,121 $128,753 $132,573 $138,115  18 %
Total revenues (77,218) (158,495) (4,235) 172,374  178,011  na
Net income (loss) (21,471) (67,065) (13,555) 56,816  49,446  na
Net income (loss) per share of Class A common stock:       
Basic$(0.18)$(0.48)$(0.11)$0.46 $0.34  na
Diluted$(0.18)$(0.48)$(0.11)$0.46 $0.34  na
Weighted-average shares of Class A common stock:       
Basic 61,144,139  61,407,834  62,192,899  62,805,788  62,834,818  3 %
Diluted 61,144,139  61,407,834  62,192,899  65,831,409  65,739,470  8 %
Quarterly dividend per share of Class A common stock(1)$0.20 $0.20 $0.20 $0.20 $0.20  —%
Supplemental dividend per share of Class A common stock(1)$ $ $ $ $0.25  na
Accrued carried interest allocations 1,366,314  1,189,323  1,126,386  1,227,173  1,277,783  (6)%
        
Non-GAAP Results(2)       
Management and advisory fees, net(3)$116,732 $119,121 $128,753 $132,720 $138,301  18 %
Adjusted revenues 190,339  150,638  148,053  152,940  152,780  (20)%
Fee-related earnings (“FRE”) 36,617  39,044  42,701  37,796  44,402  21 %
Fee-related earnings margin(4) 31% 33% 33% 28% 32%  
Gross realized performance fees 73,607  31,517  19,300  20,220  14,479  (80)%
Adjusted net income (“ANI”) 47,134  37,261  31,153  27,115  29,388  (38)%
Adjusted weighted-average shares 114,466,962  114,606,326  114,651,163  114,765,635  114,673,696  —%
ANI per share$0.41 $0.33 $0.27 $0.24 $0.26  (37)%
        
Key Business Drivers/Operating Metrics (in billions)       
Assets under management (“AUM”)(5)$136.5 $135.0 $134.0 $138.4 $142.6  4 %
Assets under advisement (“AUA”)(5) 451.9  466.7  468.0  482.2  497.0  10 %
Fee-earning AUM (“FEAUM”) 78.6  80.1  83.0  85.4  87.4  11 %
Undeployed fee-earning capital (“UFEC”) 17.1  16.5  14.0  15.7  16.9  (1)%

_______________________________
(1)      Dividends paid, as reported in this table, relate to the preceding quarterly period in which they were earned.
(2)      Adjusted revenues, fee-related earnings, fee-related earnings margin, adjusted net income, adjusted weighted-average shares and ANI per share are non-GAAP measures. See the definitions of these measures and reconciliations to the respective, most comparable GAAP measures under “Non-GAAP Financial Measures: Definitions and Reconciliations.”
(3)      Excludes the impact of consolidating the Consolidated Funds. See reconciliation of GAAP measures to adjusted measures that follows.
(4)      Fee-related earnings margin is calculated by dividing fee-related earnings by management and advisory fees, net.
(5)      AUM/AUA reflects final data for the prior period, adjusted for net new client account activity through the period presented. Does not include post-period investment valuation or cash activity. Net asset value (“NAV”) data for underlying investments is as of the prior period, as reported by underlying managers up to 100 days, or 115 days at the fiscal year-end, following the prior period end. When NAV data is not available 100 days, or 115 days at the fiscal year-end, following the prior period end, such NAVs are adjusted for cash activity following the last available reported NAV.


StepStone Group Inc.

GAAP Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share amounts)

 As of
 June 30, 2023 March 31, 2023
Assets   
Cash and cash equivalents$91,733 $102,565
Restricted cash 699  955
Fees and accounts receivable 46,091  44,450
Due from affiliates 62,365  54,322
Investments:   
Investments in funds 122,149  115,187
Accrued carried interest allocations 1,277,783  1,227,173
Legacy Greenspring investments in funds and accrued carried interest allocations(1) 745,586  770,652
Deferred income tax assets 38,910  44,358
Lease right-of-use assets, net 100,531  101,130
Other assets and receivables 44,889  44,060
Intangibles, net 343,983  354,645
Goodwill 580,542  580,542
Assets of Consolidated Funds:   
Cash and cash equivalents 35,497  25,997
Investments, at fair value 39,188  30,595
Other assets 836  772
Total assets$3,530,782 $3,497,403
Liabilities and stockholders’ equity   
Accounts payable, accrued expenses and other liabilities$91,322 $89,396
Accrued compensation and benefits 92,521  66,614
Accrued carried interest-related compensation 668,704  644,517
Legacy Greenspring accrued carried interest-related compensation(1) 593,670  617,994
Due to affiliates 199,407  205,424
Lease liabilities 116,175  121,224
Debt obligations 98,468  98,351
Liabilities of Consolidated Funds:   
Other liabilities 354  566
Total liabilities 1,860,621  1,844,086
Redeemable non-controlling interests in Consolidated Funds 41,618  24,530
Stockholders’ equity:   
Class A common stock, $0.001 par value, 650,000,000 authorized; 62,834,871 and 62,834,791 issued and outstanding as of June 30, 2023 and March 31, 2023, respectively 63  63
Class B common stock, $0.001 par value, 125,000,000 authorized; 46,420,141 and 46,420,141 issued and outstanding as of June 30, 2023 and March 31, 2023, respectively 46  46
Additional paid-in capital 612,799  610,567
Retained earnings 152,612  160,430
Accumulated other comprehensive income 439  461
Total StepStone Group Inc. stockholders’ equity 765,959  771,567
Non-controlling interests in subsidiaries 37,678  36,380
Non-controlling interests in legacy Greenspring entities(1) 151,916  152,658
Non-controlling interests in the Partnership 672,990  668,182
Total stockholders’ equity 1,628,543  1,628,787
Total liabilities and stockholders’ equity$3,530,782 $3,497,403

(1)      Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests.


StepStone Group Inc.

GAAP Condensed Consolidated Statements of Income (Loss) (Unaudited)
(in thousands, except share and per share amounts)

 Three Months Ended June 30,
  2023   2022 
Revenues   
Management and advisory fees, net$138,115  $116,732 
Performance fees:   
Incentive fees 6    
Carried interest allocations:   
Realized 14,473   73,607 
Unrealized 49,364   (113,950)
Total carried interest allocations 63,837   (40,343)
Legacy Greenspring carried interest allocations(1) (23,947)  (153,607)
Total revenues 178,011   (77,218)
Expenses   
Compensation and benefits:   
Cash-based compensation 70,081   60,061 
Equity-based compensation 8,472   3,714 
Performance fee-related compensation:   
Realized 9,102   41,735 
Unrealized 24,211   (54,553)
Total performance fee-related compensation 33,313   (12,818)
Legacy Greenspring performance fee-related compensation(1) (23,947)  (153,607)
Total compensation and benefits 87,919   (102,650)
General, administrative and other 33,277   34,232 
Total expenses 121,196   (68,418)
Other income (expense)   
Investment income (loss) 3,086   (1,101)
Legacy Greenspring investment loss(1) (2,866)  (8,604)
Investment income of Consolidated Funds 2,362    
Interest income 431   11 
Interest expense (2,012)  (587)
Other income (loss) 227   (1,104)
Total other income (expense) 1,228   (11,385)
Income (loss) before income tax 58,043   (20,185)
Income tax expense 8,597   1,286 
Net income (loss) 49,446   (21,471)
Less: Net income attributable to non-controlling interests in subsidiaries 9,630   7,571 
Less: Net loss attributable to non-controlling interests in legacy Greenspring entities(1) (2,866)  (8,604)
Less: Net income (loss) attributable to non-controlling interests in the Partnership 19,860   (9,398)
Less: Net income attributable to redeemable non-controlling interests in Consolidated Funds 1,553    
Net income (loss) attributable to StepStone Group Inc.$21,269  $(11,040)
Net income (loss) per share of Class A common stock:   
Basic$0.34  $(0.18)
Diluted$0.34  $(0.18)
Weighted-average shares of Class A common stock:   
Basic 62,834,818   61,144,139 
Diluted 65,739,470   61,144,139 
        

(1)      Reflects amounts attributable to consolidated VIEs for which the Company did not acquire any direct economic interests.


Non-GAAP Financial Measures: Definitions and Reconciliations

Management and Advisory Fees, Net

The following table presents the components of adjusted management and advisory fees, net.

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Focused commingled funds(1)$52,742$51,553$60,680$62,093$67,119
Separately managed accounts 50,460 52,179 53,515 54,033 55,744
Advisory and other services 12,984 13,788 13,926 15,546 14,101
Fund reimbursement revenues(1) 546 1,601 632 1,048 1,337
Management and advisory fees, net$116,732$119,121$128,753$132,720$138,301

_______________________________
(1)      Reflects the add-back of management and advisory fee revenues for the Consolidated Funds, which have been eliminated in consolidation.

Adjusted Revenues

Adjusted revenues represents the components of revenues used in the determination of ANI and comprise net management and advisory fees, incentive fees (including the deferred portion) and realized carried interest allocations. We believe adjusted revenues is useful to investors because it presents a measure of realized revenues.

The table below shows a reconciliation of revenues to adjusted revenues.

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Total revenues$(77,218)$(158,495)$(4,235)$172,374 $178,011 
Unrealized carried interest allocations 113,950  176,778  63,367  (100,753) (49,364)
Deferred incentive fees   3,683    209   
Legacy Greenspring carried interest allocations 153,607  128,672  88,921  80,963  23,947 
Management and advisory fee revenues for the Consolidated Funds(1)       147  186 
Adjusted revenues$190,339 $150,638 $148,053 $152,940 $152,780 

_______________________________
(1)      Reflects the add-back of management and advisory fee revenues for the Consolidated Funds, which have been eliminated in consolidation.

The table below shows a reconciliation of GAAP measures to additional non-GAAP measures. We use the non-GAAP measures presented below as components when calculating ANI and FRE.

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
GAAP management and advisory fees, net$116,732 $119,121 $128,753 $132,573 $138,115 
Management and advisory fee revenues for the Consolidated Funds(1)       147  186 
Management and advisory fees, net$116,732 $119,121 $128,753 $132,720 $138,301 
      
GAAP cash-based compensation$60,061 $59,501 $62,628 $69,990 $70,081 
Adjustments(2) (691) (740) (520) (653) (531)
Adjusted cash-based compensation$59,370 $58,761 $62,108 $69,337 $69,550 
      
GAAP equity-based compensation$3,714 $3,783 $8,108 $9,335 $8,472 
Adjustments(3) (3,071) (3,125) (7,444) (8,274) (7,171)
Adjusted equity-based compensation$643 $658 $664 $1,061 $1,301 
      
GAAP general, administrative and other$34,232 $33,733 $43,582 $35,612 $33,277 
Adjustments(4) (14,130) (13,075) (20,302) (11,086) (10,229)
Adjusted general, administrative and other$20,102 $20,658 $23,280 $24,526 $23,048 
      
GAAP interest income$11 $356 $701 $853 $431 
Interest income earned by the Consolidated Funds(5)       (195) (244)
Non-GAAP interest income$11 $356 $701 $658 $187 
      
GAAP other income (loss)$(1,104)$(634)$358 $(40)$227 
Adjustments(6)       86  (376)
Adjusted other income (loss)$(1,104)$(634)$358 $46 $(149)

______________________________
(1)      Reflects the add-back of management and advisory fee revenues for the Consolidated Funds, which have been eliminated in consolidation.
(2)      Reflects the removal of severance and compensation paid to certain employees as part of an acquisition earn-out.
(3)      Reflects the removal of equity-based compensation for awards granted prior to and in connection with the IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in connection with the Private Wealth Transaction.
(4)      Reflects the removal of lease remeasurement adjustments, accelerated depreciation of leasehold improvements for changes in lease terms, amortization of intangibles, transaction-related costs and other non-core operating income and expenses.
(5)      Reflects the removal of interest income earned by the Consolidated Funds.
(6)      Reflects the removal of amounts for Tax Receivable Agreements adjustments recognized as other income (loss) and the removal of the impact of consolidation of the Consolidated Funds.

Adjusted Net Income

Adjusted net income, or “ANI”, is a non-GAAP performance measure that we present on a pre-tax and after-tax basis used to evaluate profitability. ANI represents the after-tax net realized income attributable to us. The components of revenues used in the determination of ANI (“adjusted revenues”) comprise net management and advisory fees, incentive fees (including the deferred portion) and realized carried interest allocations. In addition, ANI excludes: (a) unrealized carried interest allocation revenues and related compensation, (b) unrealized investment income or loss, (c) equity-based compensation for awards granted prior to and in connection with our IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in connection with the Private Wealth Transaction, (d) amortization of intangibles and (e) certain other items that we believe are not indicative of our core operating performance, including charges associated with acquisitions and corporate transactions, contract terminations and employee severance. ANI does not reflect legacy Greenspring carried interest allocation revenues, legacy Greenspring carried interest-related compensation and legacy Greenspring investment income as none of the economics are attributable to us. ANI is income before taxes fully taxed at our blended statutory rate. We believe ANI and adjusted revenues are useful to investors because they enable investors to evaluate the performance of our business across reporting periods.

Fee-Related Earnings

Fee-related earnings, or “FRE”, is a non-GAAP performance measure used to monitor our baseline earnings from recurring management and advisory fees. FRE is a component of ANI and comprises net adjusted management and advisory fees, less adjusted expenses which are operating expenses other than (a) performance fee-related compensation, (b) equity-based compensation for awards granted prior to and in connection with our IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in connection with the Private Wealth Transaction, (c) amortization of intangibles, and (d) certain other items that we believe are not indicative of our core operating performance, including charges associated with acquisitions and corporate transactions, contract terminations and employee severance. FRE is presented before income taxes. We believe FRE is useful to investors because it provides additional insight into the operating profitability of our business and our ability to cover direct base compensation and operating expenses from total fee revenue.

Fee-Related Earnings Margin

Fee-related earnings margin is a non-GAAP performance measure which is calculated by dividing fee-related earnings by management and advisory fees, net. We believe fee-related earnings margin is an important measure of profitability on revenues that are largely recurring by nature. We believe fee-related earnings margin is useful to investors because it enables them to better evaluate the operating profitability of our business across periods.

The table below shows a reconciliation of fee-related earnings to fee-related earnings margin.

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March
31, 2023
June 30,
2023
Fee-related earnings$36,617 $39,044 $42,701 $37,796 $44,402 
Management and advisory fees, net 116,732  119,121  128,753  132,720  138,301 
Fee-related earnings margin 31% 33% 33% 28% 32%
                

Gross Realized Performance Fees

Gross realized performance fees represents realized carried interest allocations and incentive fees, including the deferred portion and excluding legacy Greenspring entities. We believe gross realized performance fees is useful to investors because it presents the total performance fees realized by us.

Net Realized Performance Fees

Net realized performance fees represents gross realized performance fees, less realized performance fee-related compensation and excluding legacy Greenspring entities. We believe net realized performance fees is useful to investors because it presents the performance fees attributable to us, net of amounts paid to employees as performance fee-related compensation.

The table below shows a reconciliation of realized performance fees to gross and net realized performance fees.

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Realized carried interest allocations(1)$73,607 $22,469 $16,320 $18,693 $14,473 
Incentive fees   5,365  2,980  1,318  6 
Deferred incentive fees   3,683    209   
Gross realized performance fees 73,607  31,517  19,300  20,220  14,479 
Realized performance fee-related compensation(1) (41,735) (13,630) (11,726) (12,755) (9,102)
Net realized performance fees$31,872 $17,887 $7,574 $7,465 $5,377 

_______________________________
(1)      Excludes legacy Greenspring entities.

The table below shows a reconciliation of income (loss) before income tax to ANI and FRE.

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Income (loss) before income tax$(20,185) (74,487)$(14,287)$67,505 $58,043 
Net income attributable to non-controlling interests in subsidiaries(1) (8,116) (9,985) (10,802) (10,151) (10,540)
Net loss attributable to non-controlling interests in legacy Greenspring entities 8,604  15,357  8,966  11,148  2,866 
Unrealized carried interest allocations 113,950  176,778  63,367  (100,753) (49,364)
Unrealized performance fee-related compensation (54,553) (86,126) (31,875) 53,515  24,211 
Unrealized investment (income) loss 3,070  5,795  1,354  (2,207) (2,529)
Impact of Consolidated Funds     (4,895) (4,002) (2,647)
Deferred incentive fees   3,683    209   
Equity-based compensation(2) 3,071  3,125  7,444  8,274  7,171 
Amortization of intangibles 10,871  10,870  10,870  10,870  10,661 
Tax Receivable Agreements adjustments through earnings       (244)  
Non-core items(3) 3,950  2,945  9,952  733  (50)
Pre-tax adjusted net income 60,662  47,955  40,094  34,897  37,822 
Income taxes(4) (13,528) (10,694) (8,941) (7,782) (8,434)
Adjusted net income 47,134  37,261  31,153  27,115  29,388 
Income taxes(4) 13,528  10,694  8,941  7,782  8,434 
Realized carried interest allocations (73,607) (22,469) (16,320) (18,693) (14,473)
Realized performance fee-related compensation(5) 41,735  13,630  11,726  12,755  9,102 
Realized investment income (1,969) (2,104) (673) (757) (557)
Incentive fees   (5,365) (2,980) (1,318) (6)
Deferred incentive fees   (3,683)   (209)  
Non-GAAP interest income(6) (11) (356) (701) (658) (187)
Interest expense 587  817  1,111  1,674  2,012 
Adjusted other (income) loss(6)(7) 1,104  634  (358) (46) 149 
Net income attributable to non-controlling interests in subsidiaries(1) 8,116  9,985  10,802  10,151  10,540 
Fee-related earnings$36,617 $39,044 $42,701 $37,796 $44,402 

_______________________________
(1)      Reflects the portion of pre-tax adjusted net income of our subsidiaries attributable to non-controlling interests:

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Fee-related earnings attributable to non-controlling interests in subsidiaries$8,514 $10,149 $10,167$9,843$10,534
Non fee-related earnings (losses) attributable to non-controlling interests in subsidiaries (398) (164) 635 308 6
Net income attributable to non-controlling interests in subsidiaries$8,116 $9,985 $10,802$10,151$10,540

(2)      Reflects equity-based compensation for awards granted prior to and in connection with the IPO, profits interests issued by our non-wholly owned subsidiaries, and unrealized mark-to-market changes in the fair value of the profits interests issued in connection with the Private Wealth Transaction.
(3)      Includes (income) expense related to the following non-core operating income and expenses:

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Transaction costs$3$ $6,812$38 $37 
Lease remeasurement adjustments  (2,709)     
Accelerated depreciation of leasehold improvements for changes in lease terms  210  631 631  631 
Severance costs 44 134  42 73   
(Gain) loss on change in fair value for contingent consideration obligation 3,256 4,704  1,989 (588) (1,249)
Compensation paid to certain employees as part of an acquisition earn-out 647 606  478 579  531 
Total non-core operating income and expenses$3,950$2,945 $9,952$733 $(50)

(4)      Represents corporate income taxes at a blended statutory rate applied to pre-tax adjusted net income:

 Three Months Ended
 June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Federal statutory rate21.0%21.0%21.0%21.0%21.0%
Combined state, local and foreign rate1.3%1.3%1.3%1.3%1.3%
Blended statutory rate22.3%22.3%22.3%22.3%22.3%

(5)      Includes carried interest-related compensation expense related to the portion of net carried interest allocation revenue attributable to equity holders of the Company’s consolidated subsidiaries that are not 100% owned:

 Three Months Ended
(in thousands)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Realized carried interest-related compensation$4,397$2,412$2,208$2,358$2,189

(6)      Excludes the impact of consolidating the Consolidated Funds.
(7)      Excludes amounts for Tax Receivable Agreements adjustments recognized as other income (loss) ($244 thousand for the three months ended March 31, 2023).

Adjusted Net Income Per Share

ANI per share measures our per-share earnings assuming all Class B units and Class C units in the Partnership were exchanged for Class A common stock in SSG, including the dilutive impact of outstanding equity-based awards. ANI per share is calculated as ANI divided by adjusted shares outstanding. We believe ANI per share is useful to investors because it enables them to better evaluate per-share operating performance across reporting periods.

The following table shows a reconciliation of diluted weighted-average shares of Class A common stock outstanding to adjusted shares outstanding used in the computation of ANI per share.

 Three Months Ended
 June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
Adjusted net income$47,134$37,261$31,153$27,115$29,388
      
Weighted-average shares of Class A common stock outstanding – Basic 61,144,139 61,407,834 62,192,899 62,805,788 62,834,818
Assumed vesting of RSUs 798,326 913,479 457,818 524,576 400,034
Assumed vesting and exchange of Class B2 units 2,448,833 2,466,194 2,486,197 2,501,045 2,504,618
Exchange of Class B units in the Partnership(1) 47,146,840 46,889,995 46,662,062 46,420,141 46,420,141
Exchange of Class C units in the Partnership(2) 2,928,824 2,928,824 2,852,187 2,514,085 2,514,085
Adjusted shares 114,466,962 114,606,326 114,651,163 114,765,635 114,673,696
      
Adjusted net income per share$0.41$0.33$0.27$0.24$0.26

_______________________________
(1)      Assumes the full exchange of Class B units in the Partnership for Class A common stock of SSG pursuant to the Class B Exchange Agreement.
(2)      Assumes the full exchange of Class C units in the Partnership for Class A common stock of SSG pursuant to the Class C Exchange Agreement.

Key Operating Metrics

We monitor certain operating metrics that are either common to the asset management industry or that we believe provide important data regarding our business. Refer to the Glossary below for a definition of each of these metrics.

Fee-Earning AUM

 Three Months Ended Percentage
Change
(in millions)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
 vs. FQ1'23
Separately Managed Accounts       
Beginning balance$49,586 $52,198 $52,881 $53,420 $55,345  12 %
Contributions(1) 3,371  1,760  2,149  2,378  1,425  (58)%
Distributions(2) (445) (588) (2,178) (997) (429) (4)%
Market value, FX and other(3) (314) (489) 568  544  304  na
Ending balance$52,198 $52,881 $53,420 $55,345 $56,645  9 %
        
Focused Commingled Funds       
Beginning balance$25,587 $26,352 $27,236 $29,565 $30,086  18 %
Contributions(1) 1,160  1,139  2,497  713  796  (31)%
Distributions(2) (382) (304) (168) (308) (252) (34)%
Market value, FX and other(3) (13) 49    116  132  na
Ending balance$26,352 $27,236 $29,565 $30,086 $30,762  17 %
        
Total       
Beginning balance$75,173 $78,550 $80,117 $82,985 $85,431  14 %
Contributions(1) 4,531  2,899  4,646  3,091  2,221  (51)%
Distributions(2) (827) (892) (2,346) (1,305) (681) (18)%
Market value, FX and other(3) (327) (440) 568  660  436  na
Ending balance$78,550 $80,117 $82,985 $85,431 $87,407  11 %

_______________________________
(1)      Contributions consist of new capital commitments that earn fees on committed capital and capital contributions to funds and accounts that earn fees on net invested capital or NAV.
(2)      Distributions consist of returns of capital from funds and accounts that pay fees on net invested capital or NAV and reductions in fee-earning AUM from funds that moved from a committed capital to net invested capital fee basis or from funds and accounts that no longer pay fees.
(3)      Market value, FX and other primarily consist of changes in market value appreciation (depreciation) for funds that pay on NAV and the effect of foreign exchange rate changes on non-U.S. dollar denominated commitments.

Asset Class Summary

 Three Months Ended Percentage
Change
(in millions)June 30,
2022
September
30, 2022
December
31, 2022
March 31,
2023
June 30,
2023
 vs. FQ1'23
FEAUM       
Private equity$41,944$42,781$45,048$45,766$46,539 11%
Infrastructure 18,395 18,592 18,314 19,274 19,874 8%
Private debt 12,794 13,377 14,082 14,361 14,865 16%
Real estate 5,417 5,367 5,541 6,030 6,129 13%
Total$78,550$80,117$82,985$85,431$87,407 11%
        
Separately managed accounts$52,198$52,881$53,420$55,345$56,645 9%
Focused commingled funds 26,352 27,236 29,565 30,086 30,762 17%
Total$78,550$80,117$82,985$85,431$87,407 11%
        
AUM(1)       
Private equity$75,683$72,169$70,868$71,611$73,511 (3)%
Infrastructure 26,285 27,749 27,324 27,285 28,521 9%
Private debt 23,631 23,583 24,437 26,592 27,099 15%
Real estate 10,938 11,516 11,372 12,891 13,469 23%
Total$136,537$135,017$134,001$138,379$142,600 4%
        
Separately managed accounts$79,504$78,625$77,797$82,243$85,058 7%
Focused commingled funds 44,658 43,928 43,289 43,062 44,389 (1)%
Advisory AUM 12,375 12,464 12,915 13,074 13,153 6%
Total$136,537$135,017$134,001$138,379$142,600 4%
        
Advisory AUA       
Private equity$234,368$239,640$239,270$242,461$251,880 7%
Infrastructure 45,000 47,538 47,833 50,700 53,593 19%
Private debt 15,661 16,831 16,823 17,362 17,525 12%
Real estate 156,851 162,691 164,072 171,668 173,992 11%
Total$451,880$466,700$467,998$482,191$496,990 10%
        
Total capital responsibility(2)$588,417$601,717$601,999$620,570$639,590 9%

_____________________________
Note: Amounts may not sum to total due to rounding. AUM/AUA reflects final data for the prior period, adjusted for net new client account activity through the period presented. Does not include post-period investment valuation or cash activity. Net asset value (“NAV”) data for underlying investments is as of the prior period, as reported by underlying managers up to 100 days, or 115 days at the fiscal year-end, following the prior period end. When NAV data is not available 100 days, or 115 days at the fiscal year-end, following the prior period end, such NAVs are adjusted for cash activity following the last available reported NAV.
(1)      Allocation of AUM by asset class is presented by underlying investment asset classification.
(2)      Total capital responsibility equals assets under management (AUM) plus assets under advisement (AUA).


Contacts

Shareholder Relations:
Seth Weiss
shareholders@stepstonegroup.com
1-212-351-6106

Media:
Brian Ruby / Chris Gillick, ICR
StepStonePR@icrinc.com
1-203-682-8268

Glossary

Assets under advisement, or “AUA”, consists of client assets for which we do not have full discretion to make investment decisions but play a role in advising the client or monitoring their investments. We generally earn revenue for advisory-related services on a contractual fixed fee basis. Advisory-related services include asset allocation, strategic planning, development of investment policies and guidelines, screening and recommending investments, legal negotiations, monitoring and reporting on investments, and investment manager review and due diligence. Advisory fees vary by client based on the scope of services, investment activity and other factors. Most of our advisory fees are fixed, and therefore, increases or decreases in AUA do not necessarily lead to proportionate changes in revenue.

Our AUA is calculated as the sum of (i) the NAV of client portfolio assets for which we do not have full discretion and (ii) the unfunded commitments of clients to the underlying investments. Our AUA reflects the investment valuations in respect of the underlying investments of our client accounts on a three-month lag, adjusted for new client account activity through the period end. Our AUA does not include post-period investment valuation or cash activity. AUA as of June 30, 2023 reflects final data for the prior period (March 31, 2023), adjusted for net new client account activity through June 30, 2023. NAV data for underlying investments is as of March 31, 2023, as reported by underlying managers up to 100 days following March 31, 2023. When NAV data is not available 100 days following March 31, 2023, such NAVs are adjusted for cash activity following the last available reported NAV.

Assets under management, or “AUM”, primarily reflects the assets associated with our separately managed accounts (“SMAs”) and focused commingled funds. We classify assets as AUM if we have full discretion over the investment decisions in an account or have responsibility or custody of assets. Although management fees are based on a variety of factors and are not linearly correlated with AUM, we believe AUM is a useful metric for assessing the relative size and scope of our asset management business.

Our AUM is calculated as the sum of (i) the net asset value (“NAV”) of client portfolio assets, including the StepStone Funds and (ii) the unfunded commitments of clients to the underlying investments and the StepStone Funds. Our AUM reflects the investment valuations in respect of the underlying investments of our funds and accounts on a three-month lag, adjusted for new client account activity through the period end. Our AUM does not include post-period investment valuation or cash activity. AUM as of June 30, 2023 reflects final data for the prior period (March 31, 2023), adjusted for net new client account activity through June 30, 2023. NAV data for underlying investments is as of March 31, 2023, as reported by underlying managers up to 100 days following March 31, 2023. When NAV data is not available 100 days following March 31, 2023, such NAVs are adjusted for cash activity following the last available reported NAV.

Consolidated Funds refer to the StepStone Funds that we are required to consolidate as of the applicable reporting period. We consolidate funds and other entities in which we hold a controlling financial interest.

Fee-earning AUM, or “FEAUM”, reflects the assets from which we earn management fee revenue (i.e., fee basis) and includes assets in our SMAs, focused commingled funds and assets held directly by our clients for which we have fiduciary oversight and are paid fees as the manager of the assets. Our SMAs and focused commingled funds typically pay management fees based on capital commitments, net invested capital and, in certain cases, NAV, depending on the fee terms. Management fees are only marginally affected by market appreciation or depreciation because substantially all of the StepStone Funds pay management fees based on capital commitments or net invested capital. As a result, management fees and FEAUM are not materially affected by changes in market value.

Legacy Greenspring entities refers to certain entities for which the Company, indirectly through its subsidiaries, became the sole and/or managing member in connection with the Greenspring acquisition.

Private Wealth Transaction refers to new arrangements entered into by which certain members of the StepStone Group Private Wealth LLC (“SPW”) team received a profits interest in SPW and concurrently entered into an option agreement which provides that, (i) we have the right to acquire the profits interest at the end of any fiscal quarter after June 30, 2027, in exchange for payment of a call price and (ii) the SPW management team, through an entity named CH Equity Partners, LLC (formerly known as Conversus Holdings LLC), has the right to put the profits interest to us on June 30, 2026 or at the end of any fiscal quarter thereafter, in exchange for payment of a put price.

SSG refers solely to StepStone Group Inc., a Delaware corporation, and not to any of its subsidiaries.

StepStone Funds refer to focused commingled funds and separately managed accounts of the Company, including acquired Greenspring funds, for which the Partnership or one of its subsidiaries acts as both investment adviser and general partner or managing member.

The Partnership refers solely to StepStone Group LP, a Delaware limited partnership, and not to any of its subsidiaries.

Total capital responsibility equals AUM plus AUA. AUM includes any accounts for which StepStone Group has full discretion over the investment decisions, has responsibility to arrange or effectuate transactions, or has custody of assets. AUA refers to accounts for which StepStone Group provides advice or consultation but for which the firm does not have discretionary authority, responsibility to arrange or effectuate transactions, or custody of assets.

Undeployed fee-earning capital represents the amount of capital commitments to StepStone Funds that has not yet been invested or considered active but will generate management fee revenue once this capital is invested or activated.

 


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NASDAQ:STEP

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